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Commodities

I have seen a few pieces online in recent weeks predicting the end of the world as we know it because of soaring commodity prices. Some such as Jeremy Grantham one of the founders and Chief Strategist of Grantham Mayo Van Otterloo (GMO) is predicting a paradigm shift in commodity prices.

To quote the opening line of his recent Quarterly Letter –

Summary of the Summary
The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value.  We all need to adjust our behavior to this new environment.  It would help if we did it quickly.

Grantham then goes on to lay out his case for this shift and they do appear compelling. However, there is another case to be made. Rick Bookstaber makes a slightly different case that is based not around a shift due to run away consumption but rather a shift due to a change in attitude. That is people will simply consume less, this drop in consumption will in many ways be the result of a dramatic shift in technology. Whilst I am not a fan of the notion of the coming singularity with the merging of man and machine with all life to be virtual Bookstaber presents an interesting alternative.

The most interesting thing about the notion of run away commodity prices is that they seemed to have stalled as evidenced by the chart below. Prices in aggregate terms are not back to their highs of 2008.

I did note on the radio yesterday that the RBA were looking at commodity prices as a factor in potential interest rate rises.  The cynic in me cant help but notice that once a government notices something is happening it is probably all over.

 

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